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This study examines the efforts of many developing countries to promote their economies as sites for foreign direct investment. It develops a model of determinants of foreign direct investment flows to test the extent to which countries are able to differentially attract foreign direct investment through promotional activities. The statistical study lends support to the concept that the convergence of policy and promotional activities around the developing world is leading to a movement toward the maturity phase of the life cycle of the differential effectiveness of special attraction efforts. While this trend does not support a discontinuation of these special attraction efforts, we do suggest that it does make it critical that promotional organizations in developing countries emphasize “functional” rather than “selective” policy reforms and promotional activities that are non‐discriminatory in relation to local investors.

Reports on a study that examines, by interviews and archival research, the promotional structures which 11 governments in ten countries have put in place to market their economies to foreign investors. Focuses specifically on the various forms through which these governments have conducted their overseas marketing operations. Finds that governments that have been most effective in influencing foreign investors have created overseas offices that “stand alone”, and are unconnected with the governments′ other foreign operations. Also identifies the conditions necessary for a successful overseas investment promotion operation.

Public administrations all over the world are interested in attracting more foreign direct investment to their regions. For many governments, however, especially those in developing countries, this new‐found enthusiasm towards promoting investment appears to be at odds with an historical emphasis on closely controlling foreign investment. This study examines the manner in which ten developing countries manage foreign investment in order to assess the extent to which the functions of promoting and controlling foreign investment substitute for, or complement, each other. The data suggest that most governments in developing countries do view promotion and control as functions that do not co‐exist well. The experiences of a few countries, however, demonstrate that under the right conditions these separate functions can be carried out even within the same organisation.

This study examines the recent efforts by the governments of two Caribbean countries to enhance the competitiveness of their economies in the context of the framework of the use of functional versus selective government interventions. In the course of the study, however, it was discovered that rather than focus exclusively on the distinction between functional and selective interventions as if they represent competing models for public policy intervention, it was useful to examine, pragmatically, the range of policy options open to these governments, and then consider the scope and merits of intervention in the context of these policy options. In so doing, it becomes apparent that functional and selective government interventions, to the extent that they are always distinguishable, become points along a continuum, rather than orthogonal lines incapable of being joined. The lesson of these Caribbean economies and, it is argued, of the East Asian experience, is that there is no simple choice between selective and functional interventions for the developing economy seeking to enhance its international competitiveness. Governments of these countries, and others seeking to enhance the international competitiveness of their economies, may well have to be capable of managing the process of selecting functional interventions, and of reducing the risks and improving the functioning of selective interventions.